ATO debt: pay it now or later, now that GIC isn't deductible?

For a long time, owners treated ATO debt as the cheapest credit around: easy to fall into, slow to chase, and the interest was tax deductible. The last part is no longer true. Since 1 July 2025, ATO interest charges are not deductible. That shifts the maths on whether to pay tax debt now or keep carrying it.

What changed on 1 July 2025?

The ATO’s legislation page puts it plainly: interest charges the ATO applies from 1 July 2025 onwards can’t be claimed as an income tax deduction. Both the general interest charge (GIC) and the shortfall interest charge (SIC) are caught. The change is law and applies to income years starting on or after 1 July 2025.

Two other facts from the ATO matter here:

• GIC is calculated on a daily compounding basis on the amount overdue.
• Tax debts on a payment plan continue to accrue GIC.

Why does deductibility change the decision?

Because the real cost of any charge is its after-tax cost. When GIC was deductible, part of it was effectively offset by lower tax. Now the whole charge is borne by the business. Meanwhile, interest and fees on borrowing used for business purposes are generally deductible (your accountant will confirm for your situation).

So the comparison has tilted:

Path	Cost behaviour	Tax treatment
Carry the ATO debt	GIC compounds daily on the overdue amount	Not deductible (from 1 July 2025)
ATO payment plan	GIC keeps accruing on the plan balance	Not deductible
Refinance with a business facility	Fees and interest per the facility terms	Generally deductible when used for business
Pay from cash flow	No charge once paid	—

We don’t publish rates, and GIC changes each quarter, so the only fair test is the total dollar cost of each path over the time you’d take to clear it, adjusted for tax. Put both figures side by side. Our cost-of-waiting calculator can hold the ATO’s charges as an ongoing monthly cost of waiting.

What else does carrying ATO debt cost?

The interest charge is only one part. ATO debt also tends to:

• limit other finance options while it’s unresolved;
• attract firmer collection action if it grows or plans default;
• take up headspace that should be going into the business;
• sit on your BAS every quarter, making each new obligation harder to meet.

For many owners, the relief of a single, planned repayment in place of a growing ATO balance is worth as much as the dollar saving.

Illustrative example: the $85,000 balance

Illustrative only — the numbers are invented to show the method, not real charges.

A transport business owes the ATO $85,000 across several quarters of BAS. It’s on a payment plan expected to take 18 months, and the GIC accruing over that time is non-deductible.

The owner gets a quote for a property-secured business loan to pay the ATO out in full. After comparing the total dollar cost of both paths over 18 months, adjusted for tax, the loan comes out lower. The business also clears its ATO position, which opens up a truck finance application it had parked. The decision wasn’t about one number; it was about the whole picture.

Carrying ATO debt and wondering if now is the time to clear it? See if you qualify — ATO debt is considered case by case.

When is a payment plan the better option?

A plan can still be the right answer:

• when the debt is small and will be cleared within a few months;
• when you expect a large receipt soon (a sale, refund or insurance payout);
• when a loan would leave cash flow too tight to keep current BAS and super up to date.

The worst option is usually an unplanned one: letting the balance grow while hoping for a better quarter. If that sounds familiar, our page on late fees and penalties shows how these costs stack up.

How does this fit with EOFY?

Tax debt and year-end planning collide in June and July: the April–June BAS lands on 28 July for quarterly lodgers, and many businesses face annual income tax soon after. If you’re weighing a big EOFY purchase while carrying ATO debt, sort the ATO position first. It usually improves every other option. Our EOFY 2027 countdown sets out the dates.

What should I ask before refinancing ATO debt?

Before you commit to either path, get clear answers to a handful of questions. They make the dollar comparison honest.

• What is the full balance today? Include GIC already added, not just the original BAS or income tax amounts.
• Are all lodgements up to date? Outstanding BAS or returns can change the balance and usually need sorting before any lender will pay the ATO out.
• How long would the payment plan really take? Use the instalment you can genuinely afford, not the one you hope to afford.
• What is the total dollar cost of the refinance? Fees and interest over the realistic term, in dollars.
• What happens to cash flow afterwards? A refinance should leave room to keep current BAS, super and PAYG withholding up to date, or the debt simply rebuilds.

That last point matters most. Clearing a past debt only helps if the business can stay current from here. If the numbers show it can’t, fix the cause first — pricing, costs or debtor days — and read when waiting is smarter.

Want to stop the charges compounding?

If your ATO balance has been sitting while the charges quietly add up, it’s worth asking what clearing it would take. A 60-second enquiry doesn’t involve a credit check and won’t be passed to a string of lenders. A lending specialist who works with ATO debt regularly looks at your situation and calls you. Please be upfront and accurate about the ATO amount and any plan you’re on — it’s the fastest route to a workable answer.